Six top income picks from Marlborough’s AAA-rated star

AAA-rated Siddarth Chand Lall’s Marlborough Multi Cap Income passed its three year anniversary last month with the fund sitting pretty at the top of the performance table. Here he highlights three stocks that have driven the fund’s outperformance and three more he believes offer attractive opportunities looking ahead

Six top income picks from Marlborough’s AAA-rated star

Plus500

‘Plus500, the online trading platform, is comparatively little known but its share price has more than doubled since listing on AIM last July.

‘The company’s international client base uses contracts for difference to trade and the company matches trades from customers to limit its own capital exposure to risk.

‘This is a financial stock of sorts and certainly not without risk, but where questions have been raised the company has produced persuasive evidence, and it has so far beaten analysts’ expectations.

‘Plus500 is on a price-to-earnings (P/E) multiple of just 8x 2014 earnings, yielding over 6%. In our eyes, it remains an attractive play for both growth and income, given it is expected to generate free cashflow of $90 million (£53 million) this year. It trades on a significant discount to competitor IG Group, despite better growth rates and lower customer acquisition costs.’

Leave a comment!

Novae Group

‘We have been beneficiaries of the self-help story under way at Lloyd’s underwriter Novae. The management has changed the business mix to drive up returns, with a significant shift to shorter-tail business, which now accounts for around two-thirds of the gross written premium.

‘We bought in March 2012 at £3.50 and the share price of the company, which is listed on the FTSE SmallCap, hit £6.65 at the start of this year, although it has since pulled back.

‘Novae is trading on a P/E of 11x and 1x net tangible assets – a major discount to the sector, which generally trades on 1.5x. The yield is around 4.5% and growing steadily, which is exactly what we like to see.’

Leave a comment!

ISG

‘ISG made its name as the market leader in UK office and food retail fit-outs, and when that market contracted the company responded by diversifying. This has proved successful and more than half of the group now focuses on other markets.

‘Diversification away from food retailers to the sweet spot of data centres has been achieved, and this remains a growth area in regions such as Europe and the Far East. Although ISG is reticent, I believe Google is a client in this segment.

‘The Middle East is also proving an increasingly lucrative market, with orders up by 40%. Dubai will be staging the World Expo 2020 and we expect ISG to benefit significantly from demand for new and upgraded facilities in a context where failure to deliver on time is not something the authorities will want to risk.

‘ISG is recruiting, the balance sheet has net cash in excess of £35 million and the order book is up by 26% to almost £1 billion. The stock is on a P/E of 13x for 2014, falling to 10x for 2015, and the yield is a little over 3%.’

Leave a comment!

Central Asia Metals

‘Central Asia Metals (CAM) is one of the few resource-related companies in the fund and the attraction is the absence of exploration risk. CAM uses a chemical process to extract pure cathode copper from the waste dumps at open-pit mines.

‘Listed on AIM, CAM is based in Kazakhstan but that means it is alongside major mining names, and the process, solvent extraction and electrowinning, is a very low-cost one, producing a pound of copper for 73 US cents.

‘That compares with a spot price of around $3.

‘It has now taken sole ownership of the Kounrad mine plant, where it is planning to increase copper production to 15,000 tonnes a year.

‘Recent production figures have all met or beaten forecasts. The P/E is around 9x, with a yield of 5.5% rising to 6.2%, and it has net cash of around $45 million on the balance sheet.’

Leave a comment!

Safestyle UK

‘Safestyle is a manufacturer and retailer of uPVC units, primarily for homeowners who are looking to replace doors and windows.

‘The shares reached around 200p earlier this year, twice the price when it floated on AIM in December, though it has dropped back since

‘Safestyle does not rely on house builders, which reduces vulnerability to a housing market slowdown, and is benefiting from trends for increased energy efficiency and reduced property maintenance.

‘The company estimates that in 2007, the uPVC market was worth around £3 billion a year and that this has shrunk to £1.8 billion, which tells us the industry is still in recovery mode rather than bubble territory.

‘Safestyle has around an 8% market share, is on a P/E of 11x, falling to 10x in 2015, and yields 4%.’

Leave a comment!

Keller Group

‘Keller, which is FTSE 250-listed, is the world’s leading ground engineering specialist, with around half of its revenues coming from North America.

‘We like the international focus, low gearing and the fact that it operates in a niche sub-sector of construction, undertaking complex groundwork where, for example, there may be a risk of damaging neighbouring building foundations.

‘The stock has undergone a significant correction but we see strong potential, since the US non-residential construction market is still 20% below its 2007 peak.

‘Keller is on a P/E of 11, falling to 9.8 next year, and the yield is 3%, backed by 7-8% free cashflow yield.’

Leave a comment!

Plus500

‘Plus500, the online trading platform, is comparatively little known but its share price has more than doubled since listing on AIM last July.

‘The company’s international client base uses contracts for difference to trade and the company matches trades from customers to limit its own capital exposure to risk.

‘This is a financial stock of sorts and certainly not without risk, but where questions have been raised the company has produced persuasive evidence, and it has so far beaten analysts’ expectations.

‘Plus500 is on a price-to-earnings (P/E) multiple of just 8x 2014 earnings, yielding over 6%. In our eyes, it remains an attractive play for both growth and income, given it is expected to generate free cashflow of $90 million (£53 million) this year. It trades on a significant discount to competitor IG Group, despite better growth rates and lower customer acquisition costs.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Plus500

‘Plus500, the online trading platform, is comparatively little known but its share price has more than doubled since listing on AIM last July.

‘The company’s international client base uses contracts for difference to trade and the company matches trades from customers to limit its own capital exposure to risk.

‘This is a financial stock of sorts and certainly not without risk, but where questions have been raised the company has produced persuasive evidence, and it has so far beaten analysts’ expectations.

‘Plus500 is on a price-to-earnings (P/E) multiple of just 8x 2014 earnings, yielding over 6%. In our eyes, it remains an attractive play for both growth and income, given it is expected to generate free cashflow of $90 million (£53 million) this year. It trades on a significant discount to competitor IG Group, despite better growth rates and lower customer acquisition costs.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Novae Group

‘We have been beneficiaries of the self-help story under way at Lloyd’s underwriter Novae. The management has changed the business mix to drive up returns, with a significant shift to shorter-tail business, which now accounts for around two-thirds of the gross written premium.

‘We bought in March 2012 at £3.50 and the share price of the company, which is listed on the FTSE SmallCap, hit £6.65 at the start of this year, although it has since pulled back.

‘Novae is trading on a P/E of 11x and 1x net tangible assets – a major discount to the sector, which generally trades on 1.5x. The yield is around 4.5% and growing steadily, which is exactly what we like to see.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

ISG

‘ISG made its name as the market leader in UK office and food retail fit-outs, and when that market contracted the company responded by diversifying. This has proved successful and more than half of the group now focuses on other markets.

‘Diversification away from food retailers to the sweet spot of data centres has been achieved, and this remains a growth area in regions such as Europe and the Far East. Although ISG is reticent, I believe Google is a client in this segment.

‘The Middle East is also proving an increasingly lucrative market, with orders up by 40%. Dubai will be staging the World Expo 2020 and we expect ISG to benefit significantly from demand for new and upgraded facilities in a context where failure to deliver on time is not something the authorities will want to risk.

‘ISG is recruiting, the balance sheet has net cash in excess of £35 million and the order book is up by 26% to almost £1 billion. The stock is on a P/E of 13x for 2014, falling to 10x for 2015, and the yield is a little over 3%.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Central Asia Metals

‘Central Asia Metals (CAM) is one of the few resource-related companies in the fund and the attraction is the absence of exploration risk. CAM uses a chemical process to extract pure cathode copper from the waste dumps at open-pit mines.

‘Listed on AIM, CAM is based in Kazakhstan but that means it is alongside major mining names, and the process, solvent extraction and electrowinning, is a very low-cost one, producing a pound of copper for 73 US cents.

‘That compares with a spot price of around $3.

‘It has now taken sole ownership of the Kounrad mine plant, where it is planning to increase copper production to 15,000 tonnes a year.

‘Recent production figures have all met or beaten forecasts. The P/E is around 9x, with a yield of 5.5% rising to 6.2%, and it has net cash of around $45 million on the balance sheet.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Safestyle UK

‘Safestyle is a manufacturer and retailer of uPVC units, primarily for homeowners who are looking to replace doors and windows.

‘The shares reached around 200p earlier this year, twice the price when it floated on AIM in December, though it has dropped back since

‘Safestyle does not rely on house builders, which reduces vulnerability to a housing market slowdown, and is benefiting from trends for increased energy efficiency and reduced property maintenance.

‘The company estimates that in 2007, the uPVC market was worth around £3 billion a year and that this has shrunk to £1.8 billion, which tells us the industry is still in recovery mode rather than bubble territory.

‘Safestyle has around an 8% market share, is on a P/E of 11x, falling to 10x in 2015, and yields 4%.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Keller Group

‘Keller, which is FTSE 250-listed, is the world’s leading ground engineering specialist, with around half of its revenues coming from North America.

‘We like the international focus, low gearing and the fact that it operates in a niche sub-sector of construction, undertaking complex groundwork where, for example, there may be a risk of damaging neighbouring building foundations.

‘The stock has undergone a significant correction but we see strong potential, since the US non-residential construction market is still 20% below its 2007 peak.

‘Keller is on a P/E of 11, falling to 9.8 next year, and the yield is 3%, backed by 7-8% free cashflow yield.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

We use cookies to give you the best experience on our website. You can continue to use the website and we'll assume that you are happy to receive cookies. If you would like to, you can find out more about cookies and managing them at any time here. This site is for Professional Investors only, please read our Risk Disclosure Notice for Citywire’s general investment warnings

We use cookies to improve your experience. By your continued use of this site you accept such use. To change your settings please see our policy.